Fed’s Hawkish Statements Pushed the Dollar


The dollar rose to its highest level in almost two years on Tuesday, bolstered by hawkish remarks from Federal Reserve members who advocated for a rapid decrease in the central bank’s bloated balance sheet, with one of them suggesting openness to half-point rate hikes.

The dollar index climbed to 99.526, its highest level since late May 2020. It was the last trading at 99.498, up 0.5 percent. Fed Governor Lael Brainard, generally a dovish policymaker, said that she expected a gradual increase in the interest rate and a quick decline in the Fed’s balance sheet to bring monetary policy to a “more neutral rate”. As needed, more tightening will be done.

Fed’s Hawkish Remarks Shake the Market

The Fed intends to decrease the balance sheet considerably more aggressively and swiftly than in the previous cycle. Second, the Fed is seriously considering a 50-basis-point rate rise and might do so at any time during the next several sessions.

After touching a one-week high of 123.66, the dollar advanced 0.7 percent versus the yen to 123.63 yen. The dollar rose to 125.105 yen on March 28, its highest level since August 2015. On the other hand, the euro has been struggling due to uncertainty over the outcome of the French elections. It was down 0.6 percent at $1.0901, matching a March 14 low of $1.09. The euro had risen to a one-month high of $1.1185 only days before, amid growing confidence about an end to Russia’s invasion of Ukraine.

President Emmanuel Macron continues to lead opinion polls. Still, his far-right eurosceptic rival, Marine Le Pen, has closed the gap. A poll released on Monday put victory within the margin of error; this caused wariness in investors ahead of the first round of the French presidential election on Sunday.

Concerns over the French elections have caused euro traders to buy put options in the $1.07-$1.09 range for expiration in late April. As traders braced for additional penalties, implied

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